What does 6 percent per annum mean? (2024)

FAQs

What does 6 percent per annum mean? ›

Per annum means yearly or annually. It is a common phrase used to describe an interest rate. Often “per annum” is omitted, as in “I have a 4% mortgage loan.” or “This bond pays interest of 6%.”

Divide your interest rate by the number of payments you'll make that year. If you have a 6 percent interest rate and you make monthly payments, you would divide 0.06 by 12 to get 0.005. Multiply that number by your remaining loan balance to find out how much you'll pay in interest that month.

Now let's assume bank pays you 6% interest compounded monthly, which means interest rate is compounded 12 times a year. In this case, bank calculates the interest every month. And similar to the previous example, period interest rate is going to be 6% divided by 12, which is going to be 0.5% per month.

Per annum means the annual rate of interest i.e., a rate of interest for a year. The rate of interest is per annum, which means the interest charged for one year will be multiplied by the principal amount.

The equation for calculating interest rates is as follows: Interest = P x R x N. Where P equals the principal amount (the beginning balance), and R stands for the interest rate (usually per year, expressed as a decimal). Finally, N corresponds to the number of time periods (generally one-year time periods).

For this example, the interest calculation is straightforward: a 6% interest rate on $30,000 results in $1,800 in interest over one year. This means, without considering any repayments or additional fees, the cost of borrowing $30,000 for a year at this interest rate would increase the total amount owing to $31,800.

Per annum means once per year. It is often used to describe interest rates.

Examples from the Collins Corpus

There's also a guaranteed rental return of 4 % per annum over five years. There's also a guaranteed rental return of 4 % per annum over five years. Most lenders will let you overpay by up to 10 per cent of the mortgage amount per annum.

To calculate a monthly interest rate, divide the annual rate by 12 to reflect the 12 months in the year.

An interest rate of 7 percent means that for every 100 units of currency (e.g., dollars, euros, etc.) you have invested or borrowed, you will earn or owe 7 units of currency as interest. It is typically expressed as an annual percentage rate (APR), which means the interest is calculated over a one-year period.

Is an interest rate of 6% high? ›

In today's market, a good mortgage interest rate can fall in the high-6% range, depending on several factors, such as the type of mortgage, loan term, and individual financial circ*mstances. To understand what a favorable mortgage rate looks like for you, get quotes from a few different lenders and compare them.

Bottom line. A 6% interest rate is enough to get anyone excited but read the fine print of what a bank is offering before signing up. Consider that there's often a cap to how much of your balance can earn that high rate, or if it's a credit union offering the rate, you'll have to become a member.

Definition of Per Annum

Per annum means yearly or annually. It is a common phrase used to describe an interest rate.

Interest is what a lender charges you to borrow the money. The interest is calculated as a percentage of your loan balance and is typically expressed as an annual rate.

"12% interest" means that the interest rate is 12% per year, compounded annually. "12% interest compounded monthly" means that the interest rate is 12% per year (not 12% per month), compounded monthly. Thus, the interest rate is 1% (12% / 12) per month. "1% interest per month compounded monthly" is unambiguous.

The compound interest on ₹40,000 at 6% per annum is ₹4,944.